The news of the week (Super Bowl LVIII notwithstanding) was the lawsuit filed by DraftKings against its former Head of VIP, Michael Hermalyn, after the latter took a job with rival Fanatics.
Hermalyn is accused of violating his non-compete, including the theft of confidential information relating to DraftKings VIP lists and practices. And that is the part of the story I want to focus on today.
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Reining in sports betting marketing is a hot topic in responsible gambling circles. Cutting down on ads. Ensuring ads aren’t targeting underage or vulnerable populations. Changing the terminology used in advertisements. These efforts are all well and good, but they miss a glaringly obvious opening that no one seems to want to close: The VIP customer.
As responsible gambling consultant Jamie Salsburg tweeted in May 2023, “The current wave of sports betting regulatory response is WILD! But just wait until someone introduces them to the use of VIP schemes.”
“I’ve been surprised at how little talk there has been of VIP treatment here in the USA, but I think this high-profile tug-of-war could bring it to the forefront,” Salsburg told Straight to the Point.
(Jamie has been banging the VIP drum for several years).
The Online VIP Customer
When we think of casino VIPs, we tend to think of the ultra-rich who jet-set to Las Vegas (or Macau) to gamble ungodly sums while the property caters to their every whim.
Online VIPs are different.
Data is hard to come by, but New Jersey is one locale that does pull back the curtain a bit. In its annual reports that look at every bet placed at licensed New Jersey online gambling sites, Rutgers University found the following:
“Top 10% players gambled more money on more bets across more days on more sites than all other casino gamblers, but the amounts of any one bet were generally smaller than those of the average player.
“As in 2018, the mean ($15.07) and median ($2.83) single bets of other casino bettors were higher than those of the Top 10% (mean=$9.39; median=$2.27).”
So, it’s not the size of the bet that makes them the Top 10% of players; it’s the frequency of their betting.
Per Rutgers:
“… members of the Top 10% bet on 12 times as many days – 201 versus 16 days on average… Top 10% gamblers also placed 51 times more bets (166,070) in 2019, on average, than other casino gamblers, who placed an average of just 3,232 bets.”
The result is the Top 10% wager, on average, 33 times more ($711,287) than the other 90% ($21,496). Those numbers are even more stark when you look at the median, $258,844 vs. $750, indicating a few whales may be skewing the average of the other 90% of bettors.
Going outside New Jersey, The Guardian reported on the UK Gambling Commission’s findings in 2020 that betting firms are heavily reliant on VIP customers, with 83% of deposits coming from 2% of one firm’s customers.
The VIP Department
Circling back to the VIP departments, which are responsible for outreach and offering the right inducements to keep VIP players happy and in action, we start to see the obvious friction between the VIP department and the Compliance-RG department.
“The VIP department is one of the most interesting pieces of the RG/PG puzzle. Every industry has VIP customers, but most don’t have the social and regulatory pressures of gaming,” Salsburg told STTP. “There is a delicate threading of the needle that needs to take place, as players who are flagged as VIPs will also frequently be flagged for problem gambling monitoring.”
One example of needle-threading gone awry comes from a January 2020 The Guardian article that reads, “Emails shared with the Guardian showed Betfair offered him [Nick Firth] free bets and football tickets “providing you maintain your VIP status.”
“The more you bet, the more you’ll get given free bets and the more likely that you give it straight back,” another bettor, Phillip Worral, told The Guardian. “You might think you’ve got no money left, but if you get an email saying you’ll get a £50 free bet if you bet £50 of your own money, you find a way to scrape it together.”
I’ve personally spoken to a Massachusetts bettor who was “invited” via text and email (which I’ve seen) to partake in a company’s VIP program. This bettor was initially encouraged to deposit $2000 to get $500 in free bets. The bettor was then offered profit boosts from 50%-100% depending on the size of their bets. These offers required the bettor to wager for much higher stakes than they had been.
That inducement is not atypical; sportsbook VIP departments are trying to accomplish two things:
Keep the bettor in action.
Keep wallet share from competitors.
Sportsbooks will woo VIPs with two types of offers, both of which were presented to the bettor above):
A typical deposit bonus.
Place a certain size bet and receive $ in return.
Do the Appropriate Guardrails Exist?
Let me start by saying the VIP department has the potential to be a strong layer of responsibility. VIP bettors have 1-on-1 interactions with hosts, so it’s an area where responsible gambling can best be addressed and signs of problem gambling can be identified.
In the licensed and regulated US online gambling space, every customer-facing person, from CS to VIP, is trained on spotting problematic behaviors - assuming the customer engages with the host.
The issue is one of mixed goals.
The VIP host’s job is to get the bettor to bet. And because of their VIP status, it’s also the area chock full of players suffering heavy losses.
In November, the Alcohol and Gaming Commission of Ontario (AGCO) dinged PointsBet for, among other things:
“Failing to appropriately intervene and provide assistance to a player who was potentially experiencing gambling harms. In this case, a player lost over $500,000 in under three months The player was flagged as potentially high-risk by the operator’s systems on multiple occasions, including due to incurring significant losses and making repeated withdrawal cancellations. Despite this, no interventions were provided by the gaming site operator during that period.”
“Despite the player withdrawing their consent for direct advertising and marketing, credits totaling $35,500 were deposited on various occasions into the player’s account, and numerous offers of free tickets to sporting events were provided.”
The above are egregious mistakes, but outside of a person openly admitting they are losing more than they can afford or are in over their head, “problematic” behaviors are subjective.
Is someone betting 100 times a day a problem gambler or a really engaged sports fan betting within their means?
Is the person who just went from $20 to $500 bets a PG, or did they land a new high-paying job or inheritance?
If a VIP player increases their volume or frequency, they may trigger a “responsible gambling” check, or the VIP host may contact the bettor. Still, most of the time, nothing will happen, as these are not in and of themselves, signs of problematic play. My understanding is these RG checks are done on less than 5% of VIP bettors, perhaps as few as 1%.
Source of Funds Checks
What happens when a bettor jumps up in stakes?
A customer might trigger a source of funds check - like the former Jaguars employee who wagered $20 million should have triggered.
Consider for a moment that many books have offered initial deposit bonuses on deposits of $3,000 and even $5,000. Those are public-facing offers, so a source of funds check is unlikely to happen at this level.
Based on my experience and conversations, books don’t bat an eye at a new customer depositing $10,000.
A source of funds check can also be triggered after certain deposit or loss thresholds are hit. But what is missing from this is any set trigger. Some states have specific regulations in place, but books usually set the thresholds. Uniform standards governing deposits, losses, and source of funds checks don’t exist. Nor does anything remotely resembling policies governing VIP programs.
Of course, if you make these standards too invasive or onerous on the bettor, the legal market begins competing with an illegal market that doesn’t care where the funds are coming from but can offer credit.
These are all questions I don’t think any operator wants to field from regulators -imaging the Massachusetts Gaming Commission hearing on that topic! That said, the brouhaha between DraftKings and Fanatics could very well lead to such uncomfortable moments. As Salsburg said, “This high-profile tug-of-war could bring it to the forefront.”
Steve, How does the profitability of the VIP/regular bettor compare with occasional/recreational bettor? I've heard that the occasional/recreational bettors are much more profitable and don't shop around for the best line. What light can you shed on this dynamic?